When an investment house ends plan-document services for micro-business retirement plans, is there an opportunity for third-party administrators?

In April 2024, Vanguard told customers it was ending recordkeeping and plan-document services for retirement plans served by Vanguard’s Individual 401(k) and other small-business lines. (Many followed Vanguard’s suggestion to transition to Ascensus.)

In 2026, Edward Jones and Morgan Stanley each told customers it will no longer provide plan-document services for “Solo 401(k)” retirement plans.

Do you think these service exits set up a business opportunity for a TPA?

Or, are many micro-business plan sponsors not a good client for a TPA?

What do you look for in evaluating whether you’d accept or decline a one-participant or micro-business plan as your client?

Too many owner-only plans (OOPs) have been set up solely to give the owner a tax deduction.  Too often, the owner is clueless about services needed to administer the plan properly and to maintain the plan documents.  Further, and perhaps unfortunately for the owner, the owner is not aware of the potential value a plan can have for their type of business and for their personal tax situation.  That  being said, a segment of our business is a group of OOPs where we have an interactive and consultative relationship with the owner and the owner's accountant.  Our clients value our understanding their business, their stage in life, their retirement goals, their tax situation, and our ability to discuss plan strategies that help them achieve their goals.

It does not take much more than having one or two open discussions with the owner about some of these topics to know if the owner will view us as a valuable resource (versus as an unnecessary but required expense of having a plan).

We have relationships with owners that exceed more than 35 years, and we also have turned down many owners who do not see value in having a service provider for their plan.  All in, we enjoy our relationship with the owners we work with and find our relationships to be both gratifying and profitable.

Others' observations?

We do a lot of owner only plans. We also charge a lot to correct errors when we take over the plans. 

I echo the above sentiments. It may not be a tremendous amount of revenue for us, but SoloK (I know it is just a made up word) Plans give us the opportunity to provide consulting to business owners. It is unfortunate that the industry commoditized our services - especially for these plans. It is sometimes difficult to explain our value when the big providers are doing it for "free". But, for the clients to whom my message resonates, we get long-term relationships. However, the default "push" to Ascensus means there is little opportunity to get these plans when the bigger firms decide to exit.

For those who are offering services, Morgan Stanley's exit seems not to present a path to Ascensus.

I do not want to hijack the topic so please ignore if this is off topic.  In your discussions with your owner-only plan clients, have the Long Term Part Time rules taken many out out of Owner Only status?

On a separate note (and hopefully on topic) for the plan documents and related services provided by RKs, I have seen enough of clients who were provided blank documents for their restatements where the RK's simply told the client to fill out the documents by a certain date. Many of these clients did not do them simply by either ignoring them or not understanding them. When they contacted RKs for help, no one was there to help them out.

I have seen and heard this by more clients than I care to count and they were all late for their restatements or not done. Surprisingly, they all got help for the initial set either by RK or the broker who set them up and then totally disappeared.

If the client is informed about the ramifications of not being in compliance and also offered a good deal by the TPA, why not have them come over (assuming everything else is in good order). 

Both Paul and Bill had very good points and observations and yes, they mostly come with compliance errors that need to be fixed, I certainly have seen quite a few myself. as a reminder, nothing is free and good service does not come dirt cheap. if a client wants good service and free/dirt cheap, I certainly let them go somewhere else.

My 2 cents FWIW

jsample’s query is a nice illustration of plan-administration duties or obligations a business owner might miss if she has no TPA or other adviser to provide tax, ERISA, and other legal advice.

If the only service an investment house provides a micro-business plan sponsor is IRS-preapproved plan documents (and even pretending the business owner reads thoroughly the whole of all those documents):

Would an unadvised plan sponsor know that hiring a part-time employee might soon make her eligible, at least for elective deferrals?

(Many still-proper uses of IRS-preapproved documents do not yet state the LTPT provision.)

Would an unadvised employer/administrator know that one employee’s eligibility changes required reporting from Form 5500-EZ to Form 5500-SF?

About a non-ERISA plan for only one self-employed individual, would the owner know that her account surpassing $250,000 invokes a Form 5500 reporting requirement?

(The IRS’s review for whether plan documents in form meet I.R.C. § 401(a) tax-qualification conditions does not require that IRS-preapproved documents explain Form 5500 reporting or tax-information duties.)

How many of these and other past errors or potential mistakes are spotted only when the business owner engages a TPA?

An investment house’s plan-document service exit might move some micro-business plan sponsors to find an improved service that includes a little related advice.

About Jakyasar’s observations, consider that some service providers that furnished documents with a blank adoption-agreement form might have done all the provider promised.

This semester I’m again teaching professional conduct. For advisers (whether lawyers, consultants, or TPAs), often the challenge is getting the advisee and the adviser to a real understanding about the scope of what service the advisee wants, and is ready to pay for.

Many TPAs provide services with wider quality than some other businesses offer or provide.

It does provide business opportunities for TPA's, but how does a TPA find out someone has one of these plans?  As Bill mentioned, typically these plans come to a TPA when someone realizes there are issues that need to be corrected.  "Free" 401k plans are really just a free document.  They do not involve any compliance, including 5500EZ filing if needed, contribution limit monitoring, loan monitoring, etc.  More often than not, those plans are brought to a TPA when either they are in need of a cash balance plan, or, if someone advising the client realizes there is an issue.  Often it is at that time that these business owners learn that total business income does not equal plan compensation for contribution limits, that plan loans are not just you can take the money when you want to do something else with it, that you don't avoid the $250,000 limit by having 4 different plans each under that limit, or sometimes even as simple as "owner only" does not mean only the owner is the one contributing.  Unfortunately to many, the free aspect outweighs compliance.

To find the soon-to-be-dumped micro-business plan sponsors and those of them who might welcome a TPA service, a practical approach likely is relationship-building with Edward Jones and Morgan Stanley brokers.

"About a non-ERISA plan for only one self-employed individual, would the owner know that her account surpassing $250,000 invokes a Form 5500 reporting requirement?"

Heck, I've been an ERISA attorney for 30 years and didn't know this rule. To be fair, I usually advise much bigger plans and only see an OO plan in the context of a business sale (where there are often BIG problems discovered!). I love continuing to learn new things every day, even after all this time.

One thing I recently found in helping a client with a ROBS transaction - when they actually DO try to read the adoption agreement/plan document, they start to get an understanding of the value of your services! My client's provider gave him a draft document that didn't exactly accomplish what they wanted in several ways, and he realized quickly that he'd never have known this if I hadn't been around to interpret for him.

This has been a large part of my business all along - referrals from CPA and lawyers who find out their client has a problem with its plan (after the fact) or part of a M&A.  Usually there is not TPA involved - or they think the TPA is the financial institution that provided them the plan documents and who does the online set up of the plan.  I would love to have a more direct line of communication with more financial institutions that probably know that their smaller clients should be using a TPA since either they themselves are out of that business model or too small to really provide much real "consulting" services let alone documents.  But many smaller companies and OOs don't want to pay or don't understand the value.